Fed Continues Tough Talk; Silver & Platinum Look Most Undervalued

As central bankers stubbornly refuse to admit they are done hiking interest rates, precious metals markets are wavering.

The Federal Reserve left its benchmark rate unchanged at a 22-year high at the conclusion of its meeting last week. But Fed chairman Jerome Powell is keeping up the fight against inflation, at least rhetorically.

Speaking Thursday before the International Monetary Fund, Powell suggested more tightening may ultimately be necessary to get inflation down to 2%.

Markets interpreted Powell’s remarks as hawkish in a shift from the dovish tone he conveyed in last week’s policy meeting. Hawkish or dovish, bullish or bearish, many investors are just fed up with the Fed moving markets on a daily basis.

CNBC’s Brian Sullivan gave voice to some of those frustrations:

Brian Sullivan (CNBC): I don't want the market to be controlled by the Federal Reserve. I wish the Federal Reserve would just do their job in the background. Nobody could even name a Fed Chairman 30 years ago. Just do your stuff, be the grease in the wheels, the motor that nobody sees. We're living and dying on every Fed change of language.

Unfortunately, CNBC doesn’t give voice to fundamental critiques of the fiat monetary system.

Central monetary planning that just operates behind the scenes and doesn’t exert undue influence on markets is not a real solution to the problem.

For one thing, there will always be pressure from Washington and Wall Street for central bankers to intervene during times of financial crisis. It is unrealistic to expect policymakers to never abuse the tremendous power to create currency out of thin air.

For another, even if the Fed could somehow be made to operate strictly on a fixed set of rules that eliminated the subjectivity and guesswork from monetary decisions, it would still be distorting markets by artificially setting interest rates and inflation targets according to some arbitrary formula.

Its existing 2% inflation target, which it is still failing to reach, is nothing but a phony substitute for stable prices. According to prevailing economic orthodoxy, 0% inflation, or genuine price stability, would be bad for the economy because more people would save rather than spend.

And zero inflation would certainly be bad for major debtors such as the U.S. government because they could no longer expect the real value of what they owe to be eroded away over time.

Of course, the government wouldn’t be in the hole for over $33 trillion in the first place if not for the fiat monetary system that fosters excessive borrowing. Under a gold standard, the government’s spending capacity would be limited by the supply of bullion in reserves and the willingness of creditors to accept promises to deliver future quantities of money redeemable in gold.

A monetary system tethered to gold, silver, and possibly other hard assets as well would allow for true price discovery in interest rates and other markets while eliminating the need for commentators on CNBC to use their analytical skills to decipher the latest verbiage from central bankers.

But for now, markets will continue to key off the Fed’s every move, non-move, and head fake. The smart money in futures markets is still betting that the Fed’s next move will be to cut rates some time in 2024. But expectations are now shifting toward later rather than earlier in the year.

Amid the rate uncertainty, metals markets are struggling to break out into a year-end rally.

Gold prices pushed above the $2,000 level last week. But bulls failed to hold the line as selling pressure returned.

The monetary metal currently checks in at $1,950 per ounce, down 2.6% since last Friday’s close. The silver market, meanwhile, shows a weekly loss of 3.7% to bring spot prices to $22.52 per ounce.

Turning to the Platinum Group Metals, they are getting pounded this week. Platinum is down a whopping 9.4% to trade at $858. Palladium plummeted to a five-year low on Thursday and is now posting an even more staggering 12.4% loss this week, almost $150 an ounce, to come in at $1,016 as of this Friday morning recording.

Bargain hunters may find platinum and palladium especially attractive at what appear to be deeply oversold levels. Like gold, platinum and palladium are available in the form of beautifully minted coins as well as affordable bullion bars.

Silver also looks tantalizingly cheap as it continues to be mired in a trading range.

Each of these three metals face supply deficits. Despite the risk of softening industrial demand in some sectors, new sources of demand are constantly emerging – especially in the areas of alternative energy and high-tech. And investment demand is a wild card that could be a catalyst for price gains in the white metals.

Investors haven’t seen fit to rush into bullion this year like have in years past. Of course, the Fed’s rate hikes have been a major headwind for metals markets. But given the upward pressure they have put on the U.S. dollar’s foreign exchange rate, gold at least has held up quite well.

When the pressure finally reverses on the dollar to the downside, there could be plenty of upside realized across the metals space.

Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a wonderful weekend everybody.

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